DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, May 6, 1998

tween Prime Minister Ryutaro HASHIMOTO and Russian President Boris YELTSIN in the Kawana. HASHIMOTO reportedly proposed to YELTSIN that the two nations draw a border between their countries north of a group of disputed islands now controlled by Russia. The proposal, which departs from Japan's previous long-held stance of an immediate return of the islands, also provides for allowing Russia to maintain control of the islands until they are returned to Japan after a demarcation line is has been established. YELTSIN said he would seriously consider the proposal. The two sides are also expected to discuss YELTSIN's proposal on broadening the scope of a future peace treaty, friendship and cooperation.

Chechens Blame Russians For Kidnapping

· Chechen national Security Service chief Lecho KHULTYGOV has blamed the abduction of Russian Presidential envoy Valentin VLASOV on May 1st on Russia's Federal Security Service, the successor to the KGB. VLASOV was kidnapped at gun point, while he was traveling to Grozny for official meetings. KHULTYGOV stated that, "according to our information, VLASOV is being kept at their [Russian Security Service] secret base outside Chechnya." He also did not exclude the possibility that VLASOV was part of the alleged scheme and that he deliberately dismissed all but one of his bodyguards. No one has claimed responsibility for the kidnapping nor have set terms for VLASOV's release. Chechen officials have repeatedly blamed kidnappings and other crimes in

Russian Federation

Politics

Former Property Min. Facing Criminal Charges

· Moscow Prosecutor Sergei GERASIMOV has charged former property Minister Alfred KOKH with embezzlement and said that other high ranking members of former first deputy prime minister Anatoly CHUBAIS' team may soon face criminal charges.Also under investigation are former director of the Federal Insolvency and Bankruptcy Service Pyotr MOSTOVOI and former chairman of the State Property Committee Sergei BELYAEV. KOKH has been charged with illegally obtaining a state owned apartment in down town Moscow in 1993. If convicted KOKH faces a maximum jail term of 10 years. KOKH, who heads of the Moscow-based Montes Auri investment company, had been barred from traveling abroad. According to a Moscow radio station, KOKH has already left Russia. GERASIMOV sees no problem with KOKH's departure noting that, "KOKH repeatedly returned from abroad when summoned by the Moscow prosecutor's office." KOKH was previously investigated with other CHUBAIS team members for the notorious "book scandal," in which KOKH received a $100,000 from the Swiss company Servina Trading for an allegedly non-existent book on privatization in Russia.

Rus-Japan Continue Treaty Talks

· Bilateral peace treaty talks between Russian Deputy Foreign Minister Grigory KARASIN and Japan's Deputy Foreign Minister Minoru TAMBA are scheduled to begin today in Moscow. The talks, which will constitute the second session of a bilateral subcommittee set up to draft a peace treaty, will discuss how to speed up bilateral talks on concluding a peace treaty by resolving the territorial dispute over the Kuril Islands by 2000. It will be the first time the subcommittee has met since the April summit be

Today's News Highlights

Russia

German Banks Open In Moscow

Russian News Available on Web

European Republics

Estonia PM Fails To Call Election

Estonia Review Rus. Integration

South Caucasus & Central Asia

Georg. Dep. Interior Min. Fired

EU Grants Georgia-Uzbek Loans

New Armenian Foreign Advisor

Rus-Uzbek To Sign Accords

Politics-Economics-Business

Page

Wednesday

May 6, 1998

Intercon's Daily

the region on the Russian Security Service but have failed to offer any proof. In Chechnya there are different views on who is behind the kidnapping. Chief investigator in Chechnya's anti-abduction department Supyan AKHMADOV believes that VLASOV was kidnapped by the same people who abducted a prominent Russian TV correspondent and other journalists. Chechen President Aslan MASKHADOV blamed the kidnapping on forces aimed at, "aggravating relations between the Russian Federation and the Chechen republic." These discrepancies will not impede the search and release of VLASOV. Chechen Vice-Premier Kazbek MAKHASHEV said today that finding VLASOV, "is a matter of honor to the Chechen state."

Russian deputy interior minister Vladimir VASILYEV, who is leading the investigation on the Russian side, has proposed several motives for the kidnapping. These include a ransom, a desire to exchange VLASOV for Chechen prisoners, and attempts to undermine the growing cooperation between Russian and Chechen police, who were to begin joint border patrols this month.

Economy

Ruble = 6,135/$1.00 (NY rate)

Ruble = 6,136/$1.00 (CB rate)

Ruble = 6,108|6,164/$1.00 (buy|sell rates)

Yeltsin Sets Tough Targets For Budget

· Russian President Boris YELTSIN on Tuesday outlined tough targets for the budget through 2001. The main tasks of the Russian government for 1998-1999 is the development of a full-scale budget reform, the implementation of the 1998 budget conforming to the law and establishing a realistic budget for 1999 . YELTSIN said that, "This year the government shall stop taking loans in accordance with the needs," but all the previous obligations on the debt payment and servicing, "shall be, certainly, fulfilled." Starting from 1999, an increase of the Russian state debt will be limited by the rates of the real growth of the gross domestic product, and the loans will be used for the development of economics, the President said. YELTSIN stressed that, "draft budgets shall be honest and very tough, and the revenue plans shall proceed from pessimistic forecasts of the economic development." The 1999 spending on servicing of the state debt shall not exceed 4.3

percent of the gross domestic product. The index shall drop to 3.7 percent of the gross domestic product by 2000 and by 3.5 percent in 2001. Next year the budget deficit shall be 3.7 percent of the gross domestic product and will lower to 2.6 percent in 2000 and 2.4 percent in 2001. It is impossible to improve economic growth without a curtailment of the state spending, YELTSIN said. Budget reform can only occur through joint cooperation from the government, both chambers of the Federal Assembly, and standing joint commissions.

German Banks Open Operations In Moscow

· German banks have warmed to the idea of opening full banking operations in Moscow and are proceeding cautiously due to slow economic progress and successive government crises. Germany's biggest bank Deutsche Bank opened a new banking subsidiary in Moscow last week, upgrading its representative office and combining commercial and investment banking activities. Deutsche Bank plans to build its operations gradually. Chairman of Deutsche Bank Rolf BREUER said, "conditions for favorable business development have improved considerably," in Russia the Financial Times reported. Deutsche Bank has already arranged Eurobond issues for Gazprom, SBS Agro, and the Russian government. Other foreign banks are following Deutsche's lead. Next month Commerzbank will open a full bank operation in Moscow. Dresdner Bank in a joint venture with Banque Nationale de Paris operates a commercial and investment banking activities. Deputy Head of Russia's Central Bank Sergei ALEKSASHENKO said that foreign banks account for only 6.5 percent of the total bank assets in Russia. Since Germany is Russia's biggest trading partner, having financial institutions in Moscow will facilitate trade deals.

Business

Gazprom Forced To Overcome Domestic Debt

· While Russian gas giant Gazprom may be looking to expand operations abroad, Gazprom faces the serious problem of breaking the vicious circle of non-payments domestically. Gazprom's director of planning and economics Rishat GAFAROV said last week that the rise in Russian arrears in 1997 is a major concern. As of January 1998, Gazprom was owed $14 billion by domestic consumers. An analyst at Deutsche Morgan Grenfell in London Gundi ROYLE

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

May 6, 1998

Intercon's Daily

warns that, "If the situation [with domestic debt] is not reversed, I can see them getting into a serious cash squeeze...everything else is marginal." One suggestion on how to break this cycle is a combination of stricter measures by Gazprom and fiscal steps by the government. The national power company Unified Energy Systems (UES) represents the largest portion of Gazprom's debts. Since the appointment of former First Deputy Prime Minister Anatoly CHUBAIS as chief executive officer, there is new hope that UES will repay Gazprom. However, UES is also caught in the "dead loop" of arrears.

Russian Newspapers Offered On Internet

· Great Falls, Virginia based Russian Story, Inc. and Internet Push Channels, Inc. of Canada are the first companies to announce the application of BackWeb push technology for the delivery of twenty three famous Russian newspapers and magazines, including five dailies and five English-language digests, in full image (Acrobat PDF) on the web. At their web site, http://www.ribcast.com, Russian periodicals are automatically delivered to user desktops several hours before they are even printed in Russia. Among titles available are Arguments and Facts, Rossijskaya Gazeta, Russian Telegraph, Moscow Komsomolets, Independent Newspaper, Pravda, Expert, Interfax-AiF, Moscow News, Public Newspaper and many others. The main focus of this initiative is to bring targeted news to Russian speaking community internationally as well as serving businesses, trade partners, academic institutions and libraries closely involved in monitoring events in Russia.

responsibility, particularly for the tough decisions needed to prepare Estonia for European Union membership. Only the President can grant a government request for early election, if the ruling coalition is defeated in a no-confidence vote. Today, Estonia's ruling coalition said they plan to reject SIIMANN's proposal for early elections. Coalition Party general secretary Aviar OJAVERE said the party had supported keeping SIIMANN as Prime Minister despite the rebuff over early elections.

Estonia Seeks To Integrate Russians

· The Estonian parliament today is scheduled to discuss the Estonian government's program for integration of the non-natives in the country. The program is aimed to overcome the split in the Estonian society by integrating Russian people to the Estonian language, culture, and afterwards granting them civil and political rights. Russians account for about 35 percent of the country's population, but only a small number of them have local citizenship. More than 100,000 people are nationals of Russia and around 150,000 Estonian residents have no citizenship at all. If the parliament approves the integration program, the document will be a legitimate enactment obligatory for implementation. Russian members of the Estonian parliament intend to level criticism at the program. According to deputy Sergei IVANOV, one of the main shortfalls of the government's variant is that it calls for accustoming the Russian-speaking population to the Estonian language and only afterwards granting political and civil rights to them. Other Baltic nations, specifically Latvia, confront the same criticism by Russian residents.

South Caucasus & Central Asia

Georgian Deputy Interior Minister Fired

· Georgian Deputy Interior Minister Demuri MIKADZE and several other senior officials were fired on Tuesday for alleged incompetence in reacting to and investigation the assassination attempt on Georgian President Eduard SHEVARDNADZE February 9th, Caucasus Press reported. Not one interior officer responded from the Interior Ministry building located three blocks from the ambush site, during the 20 minute firing fight that ensued the night of the assassination attack. These firings follow in the wake of a presidential security increase due to the anticipation of a third attempt on the President.

European Republics

Estonian Opp. Party Urges Early Elections

· Three Estonian opposition parties on Tuesday announced that they back Prime Minister Mart SIIMANN's plan to call early parliamentary elections. A spokesman for the largest opposition group the Reform Party said, "We are waiting for a motion by the ruling coalition for a no-confidence vote against the government, which we would in the case support." The Reform Party occupies 19 seats in the parliament. The other opposition groups Fatherland Union and the Moderate Party both hold seven seats. SIIMANN has stated that he wants to go to the polls as early as next month, to help spread political

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

May 6, 1998

Intercon's Daily

Georgian-Swiss Air Transport Agreement

· Representatives of the Georgian air transportation department and the Swissair Company have signed in Tblisi an agreement on flights between Georgia and Switzerland. The Swiss company's planes began flying the Tblisi-Zurich-Tblisi route once a week since May 3rd in accordance with the document. Vice President of the Swissair Company Peter LUTT said that Switzerland's businesses are interested in developing relations with Georgia. He believes cooperation between the two states in air flights will form the basis of mutually beneficial partnership in industry, banking, tourism and other sectors.

Uzbekistan, Georgia To Receive EU Aid

· The European Commission on Tuesday said that it will provide financial aid to Uzbekistan and Georgia to help develop their economies. The move is part of its Tacis 1998-1999 action program. Tacis is an assistance program for central and eastern European countries plus the former Soviet Republics and Mongolia. The aid released to Uzbekistan is 22.7 million European Currency Units ($24.97 million), while Georgia will receive 9.2 million ECUs ($10.12 million). The aid will be used for selected projects in the fields of transport and telecommunications, energy, human resources, enterprise structuring, food production and institution building. The executive body of the European Union, also invited companies and organizations from member states, central and eastern European countries and the former Soviet Republics to express interest in aid projects in the two countries.

New Armenian Foreign Policy Advisor

· Armenian President Robert KOCHARYAN on Friday appointed Democratic Party of Armenia's chairman Aram SARGSYAN as his advisor on foreign policy. SARGSYAN earlier accused the international community of double standards in recognizing Bosnia but not Nagorno-Karabakh. He argued that Armenia has to align itself with Russia and Iran in order to defend its national interests, RFE/RL Newsline reported.

Rus-Uzbek Leaders Meet

· Russian President Boris YELTSIN and Uzbek President Islam KARIMOV today agreed to sign an economic cooperation treaty for the next 10 years. After the meeting, YELTSIN said that the treaty would be signed next October during his visit to Tashkent. The two leaders decided the prime ministers will lead the bilateral commission for economic cooperation. The two leaders signed an agreement to jointly build Il-76 transport planes and service II-78 and other aircraft as well as an agreement guaranteeing the rights of each others journalists on the other's soil. "The Uzbekistan-Russia link must be stronger and we are aware of your influence on the country's that surround you. We cannot help being interested in a stronger link with you," YELTSIN stressed. The sides are seriously interested in setting up interstate financial and industrial groups in aircraft construction, mining and processing of minerals and raw material resources, scientific and technical cooperation. KARIMOV announced that his country, Russia and Tajikistan have agreed to coordinate efforts to combat the spread of Islamic fundamentalism in Central Asia. Tajik President Emomali RAKHMONOV gave his consent to form the troika by telephone. The Uzbek President explained that the troika will handle questions relating to stabilization in the Central Asian region, an end to armed confrontation in Tajikistan and its economic recovery, as well as is counteracting, "aggressive extremism and fundamentalism."

Uzebk President KARIMOV is also expected to meet with Prime Minister Sergei KIRIYENKO, Moscow Mayor Yuri LUZHKOV, Russian business leaders, and visit Ilyushin aviation complex. Russia is Uzbekistan's main trade and economic partner among the CIS countries, accounting for more than $1.5 billion in foreign trade turnover. There are more than 200 joint Uzbek-Russian enterprises in Uzbekistan. The Surkhan-Kuzbass joint enterprises is one sucessful cooperation, in which Kemerovo supplies modern equipment and machinery in exchange for Uzbek farm produce.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $895.00 per year. A discount is

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1998, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page